RBI Annual Report FY 2025-26: Complete Economic Assessment and Outlook
The RBI Annual Report FY 2025-26 presents a broad assessment of the Indian and global economy during 2025-26 and explains the major opportunities and risks for 2026-27. For competitive examinations such as RBI Grade B, RBI Assistant Manager and other banking/regulatory exams, this chapter is particularly important because it brings together the year’s most important numbers on GDP growth, inflation, fiscal consolidation, external-sector resilience, credit, financial markets and monetary policy.
The central message is straightforward: India remained resilient despite a difficult global environment. Real GDP growth accelerated to 7.6% in 2025-26, inflation declined sharply, the financial system remained resilient, and fiscal consolidation continued. At the same time, geopolitical tensions, energy prices, global trade uncertainty and volatile capital flows created significant downside risks.
This makes the RBI Annual Report FY 2025-26 more than a collection of statistics. It explains why growth remained strong, what supported it, what risks emerged, and how policymakers may have to respond going forward.
RBI Annual Report FY 2025-26: What Happened to the Global Economy?
The global economy demonstrated considerable resilience in 2025.
According to the assessment presented in the report, global growth increased to 3.4% in 2025, compared with 3.3% in 2024. This performance occurred despite several adverse factors:
- high tariffs,
- policy uncertainty,
- elevated public debt,
- geopolitical tensions,
- and changing global trade conditions.
Several factors counterbalanced these headwinds. These included fiscal and monetary support, relatively accommodative financial conditions, supply-chain realignment, frontloading of imports and strong investment related to artificial intelligence.
Global inflation also declined
Global inflation eased significantly from 5.8% in 2024 to 4.1% in 2025.
The report attributes this partly to:
- softer energy prices,
- normalisation of supply-chain constraints,
- but continued stickiness in core and services inflation.
Importantly, disinflation was not uniform across countries. Services inflation remained relatively persistent in several advanced economies.
Global trade remained surprisingly strong
World goods and services trade volume grew by 5.1% in 2025, exceeding global GDP growth.
Merchandise trade volume grew 4.6%, compared with 2.7% in 2024. One factor was the frontloading of imports ahead of anticipated tariff increases. Technology-related products that were exempt from tariff measures also supported trade.
Global services trade grew 5.3%, slower than the 7.8% growth recorded in 2024.
Why does this matter for India?
India is deeply integrated into global trade and financial markets, but its growth is also substantially supported by domestic demand. This becomes an important source of resilience when external demand is uncertain.
That distinction is crucial for understanding the Indian outlook.
India’s Economic Performance in 2025-26
The most important headline from the RBI Annual Report FY 2025-26 is India’s 7.6% real GDP growth.
India’s growth increased from 7.1% in the previous year to 7.6% in 2025-26, making India the fastest-growing major economy according to the report.
What drove this growth?
The report identifies two major demand-side drivers:
- Private final consumption expenditure
- Fixed investment
On the supply side, growth was supported by:
- buoyant services,
- strong manufacturing,
- while agricultural activity was comparatively subdued.
Despite concerns regarding US tariffs, their overall effect remained limited during the year. Net exports imposed only a 0.1 percentage point drag on growth.
Exam Point
India’s real GDP growth in 2025-26: 7.6%
Previous year: 7.1%
Key demand drivers: Private consumption + fixed investment
Key supply-side support: Services + manufacturing
These are exactly the kinds of facts that can become direct objective questions.
Agriculture: A Relative Weak Spot
Agriculture and allied activities did not grow as strongly as the broader economy.
Real GVA growth in agriculture and allied activities decelerated to 2.4% in 2025-26, compared with 4.2% a year earlier. Weather-related disruptions affected kharif crops, although favourable rabi conditions provided some support.
Despite the moderation in growth, foodgrain and horticulture production reached record levels.
Policy efforts during the period included measures to:
- reduce import dependence for pulses,
- improve domestic availability of pulses,
- and increase crop productivity through the National Mission on High Yielding Seeds.
So, the correct interpretation is not simply “agriculture performed poorly.” Rather, agricultural GVA growth moderated, even while production of important crops reached record levels.
Industry and Services: Major Growth Pillars
The industrial sector recorded strong growth during 2025-26.
Real GVA growth in the industrial sector was estimated at 9.5%, compared with 8.7% in the previous year.
Manufacturing was particularly strong, with real GVA growth estimated at 11.5%, compared with 9.3% a year earlier.
Factors supporting industrial growth included:
- steady industrial credit,
- the Production Linked Incentive (PLI) scheme,
- the National Manufacturing Mission,
- and broad-based expansion across manufacturing industries.
Basic metals, motor vehicles and other transport equipment were among the sectors registering strong growth.
Services remained the biggest contributor
Services continued to dominate aggregate supply.
The report estimates that services contributed approximately 69% of real GVA growth. Real GVA growth in services increased to 8.7% in 2025-26, from 7.8% a year earlier.
Important areas included:
- trade,
- hotels,
- transport,
- communication,
- broadcasting-related services,
- storage,
- financial services,
- real estate,
- IT,
- and professional services.
Exam Point
A useful way to remember the growth structure is:
Demand → Consumption + Investment
Supply → Services + Manufacturing
Agriculture → Growth moderated, but foodgrain/horticulture production was strong
Inflation: One of the Biggest Positive Developments
Another major highlight of the RBI Annual Report FY 2025-26 is the sharp decline in headline inflation.
Headline CPI inflation declined from 4.6% in 2024-25 to 2.1% in 2025-26.
The report attributes the moderation largely to:
- muted food-price pressures,
- a favourable base effect,
- softer global commodity prices,
- and broadly contained input-cost pressures.
However, the inflation picture was not uniform across components.
Fuel inflation reflected LPG price increases in April 2025 and March 2026. Inflation excluding food and fuel remained firmer because of sustained increases in precious-metal prices, particularly gold and silver.
In contrast, inflation excluding food, fuel and precious metals remained relatively benign, helped by GST rationalisation, softer global commodity prices and muted input costs.
Why is 2.1% inflation important?
The combination of:
High growth + low inflation
created greater policy space for monetary easing during 2025-26.
This is one of the most important cause-and-effect relationships in the chapter.
Fiscal Consolidation Continued
The fiscal position also improved.
The central government’s gross fiscal deficit (GFD) stood at 4.4% of GDP in 2025-26 (RE), thereby meeting the objective of bringing the fiscal deficit below 4.5% of GDP.
The improvement was supported by:
- containment of revenue expenditure,
- higher revenue receipts,
- stronger direct-tax collections,
- and higher non-tax revenue.
This matters because fiscal consolidation can strengthen macroeconomic stability and help create space for productive capital expenditure.
The report also notes that state revenue receipts moderated during April 2025–February 2026, although state capital expenditure remained robust.
Exam Point
Central GFD, 2025-26 (RE): 4.4% of GDP
The important conceptual point is that fiscal consolidation did not mean abandoning growth-supportive expenditure. The policy emphasis remained on improving expenditure quality and maintaining productive capital spending.
Financial Sector Remained Resilient
The financial sector was another major source of strength.
The report highlights:
- healthy bank and non-bank balance sheets,
- improved asset quality,
- strong capital buffers,
- robust profitability,
- and continued credit growth.
Bank credit to the commercial sector grew 15.9% year-on-year in 2025-26, compared with 10.9% a year earlier.
Credit from non-bank sources grew 13.3%, compared with 15.1% in the previous year.
The banking system’s gross NPA ratio declined to a multi-decadal low, while the capital-to-risk-weighted-assets ratio remained comfortably above regulatory requirements.
Stress tests also indicated that banks retained sufficient capital buffers even under adverse scenarios.
Why does this matter?
A strong banking system supports the real economy through credit.
The chain is:
Healthy bank balance sheets → greater lending capacity → stronger credit growth → support to consumption and investment → economic growth
This is why financial-sector resilience is not merely a banking-sector issue; it is a macroeconomic growth factor.
External Sector: Resilient Despite a Wider Trade Deficit
India’s merchandise trade deficit widened during 2025-26.
It increased to US$333.2 billion, compared with US$282.5 billion a year earlier. Merchandise exports grew only modestly, while merchandise imports expanded faster.
Yet this did not translate into an unsustainable external position.
Why?
Because India benefited from:
- a strong services trade surplus,
- steady private transfer/remittance receipts,
- and adequate foreign-exchange reserves.
As a result, the current account deficit (CAD) remained at a sustainable 1.0% of GDP during April–December 2025.
India’s foreign-exchange reserves stood at US$691.1 billion at end-March 2026.
The report states that this represented about:
- 11 months of import cover, and
- 90.3% external debt cover.
Thus, reserves provided an important buffer against external shocks.
Capital flows were volatile
Net FDI inflows increased to US$7.7 billion, compared with US$1.0 billion in 2024-25.
In contrast, net FPI flows recorded an outflow of US$16.5 billion, compared with an inflow of US$3.3 billion in the previous year.
This distinction is highly relevant for examinations:
FDI → improved
FPI → net outflow
Monetary Policy: Growth-Inflation Dynamics Opened Policy Space
The decline in inflation alongside resilient growth created room for monetary easing.
During 2025-26, the MPC reduced the policy repo rate by 100 basis points while maintaining a neutral stance since June 2025.
Liquidity conditions remained in surplus.
Average daily net absorption under the Liquidity Adjustment Facility rose sharply to ₹1.86 lakh crore, compared with just ₹1,605 crore a year earlier.
The Reserve Bank injected durable liquidity through:
- Open Market Operation purchases,
- USD/INR buy/sell swaps,
- longer-tenor Variable Rate Repo operations,
- and CRR reductions.
The four CRR cuts together amounted to 100 basis points.
The transmission of repo-rate changes to banks’ deposit and lending rates remained robust, helped by favourable liquidity conditions.
Financial Markets and the Rupee
Domestic financial markets experienced volatility amid geopolitical tensions, uncertain capital flows and global financial-market movements.
Government-security and corporate-bond yields showed a hardening bias during the year. At the same time, corporate bond issuance remained robust, supported by improved corporate balance sheets.
Monetary easing and RBI liquidity operations helped limit upward pressure on bond yields.
The Indian rupee traded with a depreciating bias, influenced by:
- trade uncertainty,
- geopolitical tensions,
- and FPI outflows.
At the same time, efforts to promote local-currency settlement and INR-denominated invoicing continued.
What Does the RBI Expect for 2026-27?
The RBI Annual Report FY 2025-26 does not portray the coming year as risk-free.
The domestic outlook remains positive, but the external environment is challenging.
Major risks include:
- elevated energy prices,
- higher commodity prices,
- increased logistics costs,
- global financial-market volatility,
- geopolitical tensions,
- uncertainty around trade policies,
- and weather-related disruptions.
The most important projection is:
Real GDP growth, 2026-27: 6.9%
The report projects real GDP growth at 6.9%, with risks tilted to the downside, assuming the adverse impact of the West Asia conflict remains contained in the near term.
Inflation projection
CPI inflation for 2026-27 is projected at 4.6%, with risks tilted to the upside.
Potential inflation risks include:
- global fuel and commodity-price spikes,
- geopolitical disruptions,
- input-cost pressures,
- wage-cost spillovers,
- and exchange-rate volatility.
The Central Theme: Resilience, But Not Complacency
The conclusion of the RBI Annual Report FY 2025-26 can essentially be understood through one word: resilience.
India entered 2025-26 facing a difficult external environment but benefited from:
strong domestic consumption + sustained investment + low inflation + fiscal consolidation + healthy corporate balance sheets + resilient banks + adequate forex reserves.
However, resilience does not eliminate risk.
The report specifically identifies the West Asia conflict, elevated energy prices, supply-chain disruptions, financial-market volatility, global trade-policy uncertainty and weather disruptions as potential short-term headwinds.
This distinction is important for an RBI examination.
The correct conclusion is not:
India is insulated from global shocks.
Rather:
India has stronger domestic and financial buffers to absorb global shocks, but the shocks can still affect growth, inflation, capital flows and financial markets.
Exam Points: Must-Remember Statistics
| Indicator | 2025-26 / Relevant Figure |
|---|---|
| India’s real GDP growth | 7.6% |
| Previous year’s GDP growth | 7.1% |
| Global growth in 2025 | 3.4% |
| Global inflation in 2025 | 4.1% |
| India’s headline CPI inflation | 2.1% |
| Industrial real GVA growth | 9.5% |
| Manufacturing real GVA growth | 11.5% |
| Services real GVA growth | 8.7% |
| Agriculture & allied real GVA growth | 2.4% |
| Central GFD | 4.4% of GDP |
| Bank credit to commercial sector growth | 15.9% |
| Non-bank credit growth | 13.3% |
| Merchandise trade deficit | US$333.2 billion |
| CAD, April–December 2025 | 1.0% of GDP |
| Forex reserves, end-March 2026 | US$691.1 billion |
| Import cover | About 11 months |
| Net FDI inflows | US$7.7 billion |
| Net FPI flows | US$16.5 billion outflow |
| Repo-rate reduction during 2025-26 | 100 bps |
| CRR cuts during 2025-26 | 100 bps |
| Average daily LAF net absorption | ₹1.86 lakh crore |
| Real GDP projection for 2026-27 | 6.9% |
| CPI inflation projection for 2026-27 | 4.6% |
All figures in the table above are drawn from the assessment and prospects chapter of the uploaded report.
Possible Exam Questions
1. What was India’s real GDP growth in 2025-26 according to the RBI Annual Report?
Answer: 7.6%.
2. Which two major demand-side components drove India’s growth?
Private final consumption expenditure and fixed investment.
3. What was India’s headline CPI inflation in 2025-26?
2.1%.
4. What was the central government’s GFD in 2025-26 (RE)?
4.4% of GDP.
5. What was India’s CAD during April–December 2025?
1.0% of GDP.
6. What were India’s forex reserves at end-March 2026?
US$691.1 billion.
7. What was the projected real GDP growth for 2026-27?
6.9%.
8. What CPI inflation rate has been projected for 2026-27?
4.6%.
9. By how much did the MPC reduce the policy repo rate during 2025-26?
100 basis points.
10. What was bank credit to the commercial sector growth in 2025-26?
15.9% year-on-year.
Key Takeaways
- India’s real GDP growth accelerated to 7.6% in 2025-26 from 7.1% in 2024-25.
- Private consumption and fixed investment were the major demand-side growth drivers.
- Services remained the primary supply-side contributor, accounting for around 69% of real GVA growth.
- Manufacturing real GVA growth strengthened to 11.5%.
- Agriculture and allied GVA growth moderated to 2.4%, despite record foodgrain and horticulture production.
- Headline CPI inflation fell sharply to 2.1%.
- Central government GFD declined to 4.4% of GDP, meeting the below-4.5% objective.
- Bank credit to the commercial sector grew 15.9%.
- CAD remained manageable at 1.0% of GDP during April–December 2025.
- Forex reserves reached US$691.1 billion at end-March 2026.
- The MPC reduced the repo rate by 100 bps during 2025-26 while maintaining a neutral stance since June 2025.
- The outlook for 2026-27 remains positive, but geopolitical, energy, trade and weather risks remain significant.
- Real GDP growth for 2026-27 is projected at 6.9%, while CPI inflation is projected at 4.6%.
- The broad policy challenge is to preserve growth while responding flexibly to external shocks and inflation risks.
Exam Revision: 30-Second Recall
Remember this sequence:
7.6 → 2.1 → 4.4 → 15.9 → 1.0 → 691.1 → 6.9 → 4.6
- 7.6% → GDP growth, 2025-26
- 2.1% → CPI inflation, 2025-26
- 4.4% → Central GFD/GDP
- 15.9% → Bank credit growth
- 1.0% → CAD/GDP, April–December 2025
- US$691.1 bn → Forex reserves, end-March 2026
- 6.9% → GDP growth projection, 2026-27
- 4.6% → CPI inflation projection, 2026-27
One-line conceptual revision
2025-26 = Strong growth + very low inflation + fiscal consolidation + resilient financial sector + manageable external deficit, but rising global/geopolitical risks.
Final Assessment
The RBI Annual Report FY 2025-26 portrays an Indian economy that entered the year with substantial macroeconomic and financial buffers and managed to maintain high growth despite global uncertainty. The strongest pillars were domestic demand, investment, services, manufacturing, low inflation, fiscal consolidation and financial-sector resilience.
The challenge for 2026-27 is different. The report expects growth to remain positive at 6.9%, but the balance of risks has become more complicated. Geopolitical conflict can simultaneously affect oil prices → inflation → household purchasing power → corporate costs → financial markets → capital flows → growth. Consequently, the policy response will need to remain data-dependent and flexible.
For an RBI Grade B aspirant, that is the real lesson of this chapter: do not memorise the numbers in isolation. Understand the macroeconomic chain connecting growth, inflation, fiscal policy, monetary policy, financial stability and the external sector.
Next Part: RBI Annual Report FY 2025-26 — India’s Economic Outlook for 2026-27: Growth, Inflation, Risks and Policy Priorities.